Michael Dell's Dorm Room Start-Up Summit

Michael Noer
August 3, 2011
Michael Dell's Dorm Room Start-Up Summit

On July 12 Forbes’ All-Star Student Entrepreneurs convened in Austin, Tex. for a roundtable discussion with Michael Dell and FORBES' Special Projects Editor, Michael Noer. One of the greatest student-entrepreneurs of all time, Dell started his computer company in his University of Texas dorm room, and it has grown into a technology juggernaut, with 103,000 employees worldwide and more than $61 billion in sales. Dell has been CEO of the company for all but 3 of its 27 years of existence and is the 15th-richest man in America, with a personal fortune of $14 billion.

MICHAEL DELL:

One of the funniest questions that I get is, "How do I be an entrepreneur?"

CRAIG DWYER:

What's your answer?

MICHAEL DELL:

The friendly version? It's go experiment and do something. If you're waiting for somebody else to tell you to be an entrepreneur, you're not one.

ZACH HAMILTON:

Skills can be learned. It's the drive and ambition to go out there and do something that's special. Any of us could be doctors. Any of us could be lawyers. But it's the ambition to apply yourself--even when it's hard--that sets us apart.

DANIEL BLAKE:

I think the story of Dell Computer is amazing. The fact that you've been the CEO for almost the entire time since the company was founded blows my mind. It's incredible that you personally have been able to scale with the hypergrowth of your company. I don't think that's something that you can learn. And I don't think it is all straight ambition. There are plenty of very ambitious people, but that's a crazy learning curve.

MICHAEL DELL:

There are some environmental factors. If you're thrown into an environment where you have the opportunity to learn very quickly and you have to learn to be successful, your learning can be accelerated at an unbelievable level.

ERNESTINE FU:

I don't think entrepreneurship can necessarily be taught. But I think entrepreneurship classes can help. Before I got to Stanford, I didn't really know what the word entrepreneurship meant. But then I found out that I had been practicing forms of it ever since I was young. I founded a nonprofit when I was in high school. And I displayed entrepreneurship by innovating and changing the organizations that I led. But I didn't even know the term for what I was doing until I got to Stanford and everyone was saying, "Entrepreneurship! Entrepreneurship! Silicon Valley!"

NIKHIL SETHI:

It's really a definition problem. I don't think entrepreneur is the right word. It's gotten so much marketing sheen on it. Everybody wants to be an "entrepreneur." What does that mean?

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CRAIG DWYER:

Two words: action people.

NIKHIL SETHI:

Entrepreneurship classes can limit you. The professor says, "This is the assignment for the day. Complete this entrepreneurship assignment." And then, after it's done, you stop thinking about it. That's not entrepreneurship. That's not what we're doing at all.

ERNESTINE FU:

What do you think an entrepreneur is?

ZACH HAMILTON:

A doer.

CORINNE PREVOT:

And it's a passion, because you have to be willing to learn from it and it becomes so much a part of your life. You can't be a student entrepreneur if you don't like it. The work gets done because I enjoy it. It's not a task.

A.J. FORSYTHE:

All of our companies are very simple. We're not pioneers. We make dirt, bicycles, fix broken iPhones. They're basic ideas. It's all execution-based. And I think that's really what defines entrepreneurship.

JAKE MEDWELL:

At what point did you start taking a salary out of the business?

MICHAEL DELL:

I had a salary when the company started. It was $20,000 a year.

JAKE MEDWELL:

How did you determine that? Just picked it out of a hat?

MICHAEL DELL:

It was more than my allowance. Actually, I'm not really sure how I determined it. I think it was how much I needed to pay the rent and eat.

MICHAEL NOER:

Do any of you take salaries?

DANIEL BLAKE:

I do.

MICHAEL NOER:

How did you determine it? More than your allowance?

DANIEL BLAKE:

It's what I need to pay rent and buy macaroni and cheese.

ERNESTINE FU:

Ramen noodles.

A.J. FORSYTHE:

Five-dollar footlongs.

MICHAEL DELL:

Ramen noodles.

NIKHIL SETHI:

Going back to the early days of Dell, could you talk a little bit about when you had to make the transition from touching every part of the business to handing off significant parts of it to people you had just met or hired? Were there any situations where you got burned?

MICHAEL DELL:

In its first eight years the business grew 80% compounded. In the six years after that it grew 60% compounded. So if any of you are good at math you know that you are into billions of dollars when you take any number and compound it like that. It was some serious hypergrowth. And it was a lot of fun, too. I'd say within that 14-year period there were probably five or six or seven distinct transitions that occurred in terms of the way I managed the company. The principles that I used and still use today are pretty simple. What am I good at? What am I not good at? How do I get the best possible people I can to help me with the things I'm not good at? I don't want to try to do everything by myself.

A.J. FORSYTHE:

Hand over the keys.

MICHAEL DELL:

Yes, hand over the keys. Was I ever disappointed? Oh, yeah, plenty of times. When I started the business there was a guy who was the first person I hired. He knew about half the company, and I knew about the other half. And one day he just didn't come back to work because it was too much for him. I was kind of in shock, you know, what do I do now? I don't know anything about this stuff. But it all worked out.

When you are a small company that is basically unknown and you have no capital and you're young, you sort of have mercenaries that come work for you. Because the risk/reward is totally off the charts.

One of the really key things about the hypergrowth stage is that the jobs will grow very, very fast. If you think about any job that you could define in the organization, no matter what organizational structure you decide to have, if you're growing really fast the capabilities and requirements to do that job are also expanding superfast. Can you actually find people who can grow as fast as those jobs? "Probably not" is the answer. You have to just recognize that. You have to set up a system where you're able to evolve, given that challenge.

Or some people make a different decision. They say we're only going to grow as fast as our people can grow. Okay. You might end up with a very small company. You have the wrong people.

TILDEN SMITH:

When you were first starting out did you immediately look to your circle of friends for people to hire? Or did you try to shy away from that?

MICHAEL DELL:

Didn't hire any friends. And I'm glad I didn't.

JAKE MEDWELL:

Why?

MICHAEL DELL:

Actually, I'll take that back. Before the company incorporated, when I was still in school, I hired friends to do various jobs. But when the company incorporated and I was working at this full-time, I didn't hire any friends.

JAKE MEDWELL:

I think that work should be fun, and I work with probably my best friend. And I did a nonprofit while I was in school with my five best friends. I just couldn't imagine doing it with anyone else.

MICHAEL DELL:

That could totally work. I'm friendly with the people I work with. But I'll go back to something I said earlier: If the job is growing faster than the people are growing and now your best friend has this job and is not able to do it, are you going to make an emotional decision or a rational decision?

A.J. FORSYTHE:

It just goes back to "Hey, it's not personal. It's business." If you hire friends, you have to be ready to fire them.

ERNESTINE FU:

On a similar note, I would say always hire people who are better than you. Hire someone you'd be scared to sit next to at the table. You should be saying to yourself: "That person works for me? I should be working for them." There's a phrase: If A-quality people hire B-quality people, then those B-quality people will hire C-quality people, and it just keeps going down after that.

MICHAEL DELL:

That's very, very true. And I've never seen a C-quality person hire a B-quality person.

MICHAEL NOER:

How do you balance running a company and staying in school?

NIKHIL SETHI:

You definitely have to make sacrifices. If you try to have a work/life balance, as people call it, it probably won't work well for either of those segments. I don't believe in it. I think I have achieved a work/life balance if I manage to stay out of the hospital.

A.J. FORSYTHE:

Honestly, I care more about my business than an undergraduate degree. I'm hopefully going to be starting and growing businesses for the next 15 to 20 years. The first two years of college, my goal was to go to Cornell, Columbia or Harvard for business school. But everything shifted when I started this company.

MICHAEL DELL:

Here, I'll give you a new goal. Your goal should be to go and speak at those business schools and be younger than the students.

ERNESTINE FU:

What do you think the challenges are of being young and having started something so successful?

MICHAEL DELL:

I think you have to decide what kind of life you're looking for. It goes back to this work/life balance issue. I found that there was a diminishing return in terms of how many hours I worked in a day or a week. After a certain number of hours, my work productivity was not very high and I wasn't very happy, either. It wasn't a good combination. And I figured out there were some people in my industry who were a fair bit older than I was who really didn't have lives. They just worked all the time. They had no families, they had no kids. I looked at them and thought: That's not what I want. I want to have a family. I want to have children. And so I got married and have four kids, and that's an important part of my life.

There are challenges; I don't know that they're necessarily related to being young but just enjoying a lot of success very quickly. You're bombarded with people who want things from you. I had to learn how to protect myself from those people. Which of these people are actually my friends and which of these people just want something from me? It turned out a lot of people wanted things from me. And the more successful I became, the more things people wanted.

A.J. FORSYTHE:

Has that gotten better as you've gotten older?

MICHAEL DELL:

The first thing you do is you get a really great assistant. Someone who is fantastic at saying no. Because you could spend the rest of your life doing things that you don't really want to do, that other people want you to do and that don't help you to do the things you really want to do. So you have to say no 99% of the time. There are things you have to do, there are things you want to do, and there are things you like to do. And then there are the other 99% of the requests that come in.

CRAIG DWYER:

Are you the optimist? Or are the people in your cabinet the optimists?

MICHAEL DELL:

The leader has to be optimistic. This is an important thing, something I have learned: You are going to find yourself in situations where you have absolutely no idea what to do. And you've got a real mess on your hands. If you don't show your people the way forward, even if you don't know what it is, you will go out of business pretty quickly. Because they are going to look to you. You have to figure it out and come up with a plan. That's part of leadership.

MICHAEL NOER:

You were very early with online direct sales, and now Dell has become very responsive on social media. We've just had a tour of your impressive social media command center. How should these entrepreneurs be approaching social media without having the money to implement NASA?

MICHAEL DELL:

I think you'd be crazy not to be using social media, because it's the quintessential force of our time in terms of communicating with customers and sharing information. You can go out there and get your message across directly to lots of customers, lots of prospects. And it's growing tremendously.

MICHAEL NOER:

Is everybody using social media already for communicating with customers and generating sales leads?

ZACH HAMILTON:

I'm using it, but I'm in a space where we sell to government institutions and large corporations. My customers are not looking for support on Twitter. They're going to call you. Of all the people following me on Twitter, maybe just two or three are my actual customers.

CRAIG DWYER:

We recently revamped our website and started blogging. And I don't believe in that stuff. It's never generated any leads for us or anything like that. But we were actually able to get clients in Massachusetts without even having an office there, without having any kind of physical presence there, just by blogging about the Massachusetts state programs and what was going on there in terms of solar energy. All of a sudden I started getting legitimate leads coming in from people who were doing research on solar. That's when I realized that I couldn't ignore social media anymore.

MICHAEL DELL:

Natural search is highly affected by the depth of content. So if you have deep content on your site--which could come from blogs or could come from conversations with customers-- that's going to help your natural search. And natural search is a really powerful source of leads for almost any business. It's replacing a lot of other forms of media.

ERNESTINE FU:

From a nonprofit and philanthropy standpoint, I would say that social media can be beneficial in a way, but in a way not. On the one hand, you can get a lot of followers, and it can seem as if a lot of people are supporting your cause. But then there's the whole issue of how many people are actually listening to you and are actively engaged. Or are they just another follower, another person on Facebook who "likes" your page?

How much time and effort do you think young people like us should spend on philanthropy?

MICHAEL DELL:

There are lots of different models. At one extreme you have Warren Buffett, who spent no time on philanthropy for most of his life. Made an unbelievable sum of money and then toward the end of his life has given away huge amounts. Then, on the other extreme, I know a lot of great social entrepreneurs who've set up businesses right out of school, and they're doing wonderful things. My wife and I set up a foundation in our early 30s. I spend more time on the strategy of the foundation, because I'm not going to execute the day-to-day operations. We have a great team there. That was right for us. It's incredibly fun and rewarding to be able to find things where you can make a huge difference and apply some of the learning you've gained from your business experiences.

CORINNE PREVOT:

For me, my blog has been superhelpful. When it comes to the product itself the customer base is just so excited about it. They're excited about the colors, the prints. They like the idea of a Vermont-based company, they like the idea of me being a skier and a racer.

The other project that I'm taking on is trying to get hats out to chemotherapy patients. I just started a project called Skida Plus One, where for every order you can enter a promotional code that corresponds with a medical center. And when that order is placed I donate a hat to that facility. We just had our first batch of hats sent over to the Dartmouth Hitchcock Medical Center. I'm going to share that on my blog, including the actual response from the hospital.

For me social media and being able to tell that story online is exactly what I need. Otherwise nobody would have any idea what I'm doing.

NIKHIL SETHI:

That's a really good way to think about it. How can you use the product that you're creating for good? Whether it's donating Dell computers to schools in India or giving hats to hospitals. We launch ad campaigns for the Red Cross all the time during massive emergencies and events like the Japanese earthquake.

A.J. FORSYTHE:

We're doing cellphone recycling. We have five charities signed up. We give $5 for every old phone donated. And then we responsibly recycle them.

NIKHIL SETHI:

The economics of it have to make sense at our stage because we don't have capital to lose.

A.J. FORSYTHE:

That's the harsh reality of it, right?

MICHAEL NOER:

You aren't in the starting-a-foundation stage quite yet.

A.J. FORSYTHE:

Not yet.

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